Just Transactions: a white paper on just transition in the banking sector

IHRB, Clifford Chance, and the CDC Group have jointly authored a white paper that addresses how banks can support a "just transition" through climate-related financing activities, and the challenges and opportunities that this presents given the range of stakeholders to consider and their competing interests.

The report team led consultations and interviews with representatives from 16 leading banks to understand how they are incorporating just transition considerations into their strategies, governance, and operations.

Financial institutions have a crucial role to play in delivering a just transition to net-zero, but many have not yet adopted specific just transition policies or strategies. This paper, written by Clifford Chance, IHRB, and the CDC Group explores how banks can support a just transition through their climate-related activities – and the challenges and opportunities that presents.

The Paris Agreement and, more recently, the Glasgow Climate Pact signed at COP26, emphasise the importance of putting people at the centre of a just transition. This means sharing the benefits of the transition to a more sustainable, inclusive economy while supporting those who will be negatively affected by it – focusing on workers, employment, the impact on livelihoods, communities, and consumers.

Banks and other financial institutions are making their own commitments to net-zero and dedicating significant sums to accelerating the shift to a low carbon global economy. Some key findings of the paper, partly based on interviews with multilateral development and commercial banks, include:

• The private sector is key to financing a just transition but cannot do so alone – governments, international, regional, and domestic public financial institutions must be involved, together with experts in climate change, human rights, transition industries, and economic development.

• A challenge for banks is a lack of clear policy direction from governments and regulators about the role of banks in securing a just transition and the practices they should follow.

• Regulatory alignment is vital for ensuring a consistent and coherent approach to climate change and just transition issues in bank financing.

• Just transition presents opportunities and risks for banks and there are currently no dedicated policy frameworks and tools designed to help banks deal with these issues.

• There is a clear opportunity to refine existing tools and frameworks and industry and broader collaboration could make an important contribution.